I’m a reluctant Capitalist. I didn’t grow up with a lot of money (my dad was a country preacher, and my mom was a schoolteacher), and the transition from academia to building a start-up and then running my own consulting firm has been rocky at times. The one thing I still hear almost every week is “You need to charge more,” and I preach the same message to new SEOs even as I try to remember it. This post is a reminder to myself (and to you) of why what you charge matters, and why it’s not just about greed.

1. It’s Not All Billable

Almost every new consultant, freelancer, and even agency makes a critical math error. Pay attention, because this mistake could could haunt your business for years to come. It goes something like this:

I need to make $37,000 to pay the bills, and I’d like to make $50,000. A year is about 2000 work hours (50 weeks x 40 hours), so if I can just charge $25/hour, I’ll easily pay the bills and make my $50K goal.

I sincerely commend you for doing the math – it’s important to know what you need to pay the bills and to figure out what that means on a daily and hourly basis. Here’s the problem – in a 40-hour week, especially starting out, you’re going to spend half that week pounding the pavement (or more). You need to network, build your site/portfolio, blog, make phone calls, write proposals, and on and on. Once clients come in, you’ve got administrative work to do – somebody has to send the invoices, pay the taxes, and buy the toilet paper.

So, at best, only 20 hours of your week will be billable. Now, your $25/hour just netted you $25,000. You not only fell short of your $50K goal – you didn’t even pay your bills.

2. Delivery Kills Sales

But wait, it gets worse. That 20-hour billable week assumes that all of your pavement-pounding actually gets instant results. When it does finally pay off, what happens? You get a nice, juicy contract, pour all your time into delivering it, and then realize that you didn’t actually keep selling while you were doing the work. So, after you get that check, you go a month with no work at all while you rebuild your lead pipeline. Ultimately, you’ll be working a 20-hour billable week about every other week, especially for the first year or two. So, you’re averaging 10 hours per week and your $25/hour just netted you a $12,500 bottom line.

3. You Have New Costs

This one’s mostly for the freelancers and independent consultants. Revenue does not equal salary. Even being a consultant costs money – it’s not a high-overhead profession, but everything’s coming out of your pocket now. Some things that you didn’t think twice about when you were employed will suddenly seem shockingly expensive. Want to go to an industry tradeshow? With the full-conference pass, airfare, car, hotel, and meals, that’s about $2,000-3,000. Need a copy of Photoshop? You can’t just pop down to IT anymore – Adobe CS5.5 starts at $1,299. Suddenly your old boss doesn’t seem like such a cheapskate.

That doesn’t count the perks you’ve lost. You’ll hear all about the amazing tax breaks of self-employment from your friends who dream of self-employment but don’t actually have any idea what they’re talking about. Sure, you might be able to write off half your phone bill or a corner of your condo as office space, but meanwhile you’re paying both halves of your employment taxes, your own health insurance, and you’ve got no 401K. Even if you hit that $50K revenue goal, it’s probably more like a $40K salary. The $12,500 you barely squeezed out in the realistic scenario above is more like $10K, and that assumes you skip health insurance, which will run you roughly that entire amount.

4. You Set Your Value

People are funny – when we discount our prices, we expect the buyer will understand they’ve gotten a bargain. When we pay discount prices, we think we’ve walked away with something of less value. Let’s say you go to a fancy restaurant with a 50% Groupon – a month later, do you think “I should go back to that place, since I got such a great deal last time!” No, you think – “If I go back to that place, I’ll have to pay full price. That sucks!” My wife would rather die than go to Bed, Bath and Beyond without a coupon, and it’s entirely their fault for sending us 11 a day. They’ve set their value, and the message is “We don’t have any.”

What’s worse is that you send a broader message that that discount rate is your value to the market, and you even begin to believe it. Unless there’s an amazing opportunity and you’re 100% clear that this is a one-time deal, don’t even start. The legacy of discount pricing could haunt you forever.

5. Your Time Is Finite

We tend to price future work based on past work. On the surface, that makes perfect sense, but the problem is simple – the cost of 10 hours/week when you have nothing to do is a lot less than the cost of 10 hours/week when you’ve already got 40 hours booked. You only have so many hours in the day, and as you run out, they become more valuable. Think of your time like any marketable resource – with more scarcity comes higher prices.

Your time is like MegaBus. When the bus is empty, you may be able to charge $1 for a seat, but that last seat should fetch a premium price. People naturally want to book every available hour, but there’s an opportunity cost to being left with no time at all. Once the hours start to book, it’s time to raise your prices and protect your most non-renewable resource.

6. Cheap Attracts Cheap

Some people may take offense at this, but experience has taught me over and over (and by “taught” I mean “beat with a bat and left me for dead in the alley”) that the people who fight you over price will never stop fighting you. It’s easy to think that, since you gave them a discount and gave into all their demands, they’ll appreciate you more and manage their own expectations, but that’s never happened to me in almost 15 years of working with clients.

It’s almost never about the money – there are some people who just think vendors are meant to be beaten. If you win, they lose. Unfortunately, that means they’ll never see your relationship as win-win. Learn to recognize those clients during negotiation, and get out while you can.

There’s one exception – if you really want to help an organization and you know money is an issue for them, consider doing the work pro-bono. Scope a one-time project and donate your time. There’s nothing wrong with helping people. Where you go wrong is when you start letting other people define your value.

So, How Much Is “More”?

That’s the Million-dollar question, isn’t it? According to our SEO pricing survey last month, the most common hourly rate is between $76-$200 US. That’s quite a range. I think it comes back to that math in Reason #1. The trick is to do the math realistically. Be realistic about your costs and the number of hours really left in the day after sales and marketing are done (and you need to do sales and marketing every day, even when you’re working on deliverables). Maybe more importantly, decide what you want long-term and be careful about setting your value too low just to land a few clients. Today’s discount “just to pay the bills” could set your price for years to come.

Absolutely agree, and I've started giving rough prices to folks within the first 10 minutes of a call or first email. Not an official estimate of course, but something so they know my ballpark and this has saved a lot of time!! And they all appreciate me doing this up front to not waste their time either. I'm also going to post my basic fees on my website (waiting for the re-design first) as another way of filtering those with a different budget in mind.

-Dan

PS - One thing I wanted to add, which Tom Critchlow mentioned to me, and I agree is: when a prospect is willing to wait a few weeks for your services (because you're too busy to begin right away) this makes for a much better client than those who are just looking for someone, anyone, to start ASAP (unless of course a ranking emergency:-)... then I can understand the urgency).

Couldn't agree more about the fact that those who are prepared to wait end up making better clients. That means they are clear that they want you and not any old guy. I am slightly embarrassed to admit that I use this to filter out some people. If they can't hang around a week or so and aren't prepared to invest the time to engage in a proper discussion (leading to a proper relationship), then I reckon I'm better off without them. A relationship that might last years can always wait another few days. Anyway, a panicky prospect is a needy prospect and that's enough to arouse suspicion.

Great advice. I've learned through a few ventures now that charging too little can actually even scare the kinds of clients that you might want away, spurring the line of thinking "why is this so much cheaper? looks sketchy.."; seems that 'supply and demand' has failed, until you realize that most markets are much more segmented than they look... SEO surely being one of them.

Funny, isn't it? Sometimes, you lose a client by charging too little, because they assume you're only worth as much as you charge. Lately, I keep trying to scare people off by charging more, and it keeps not working :)

Problem is still unsolved! If we demand more client run away! If we demand less, client thinks we are worthless.

I am currently facing all these problems nowadays because I recently start my career so I do not a credible portfolio online. However I am skillful enough to handled online business. But to make my credibility I usually get them on low wages because I need to establish a portfolio first.

I agreed! Place matters a lot can you suggest some places where can I got reasonable amount other than odesk and elance without displaying any feedback, any portfolio and such kind of stuff? I am still finding the place where I can show my expertise in SEO and get paid according to my worth.

I know it's not easy, and it takes time to find the balance. I'd honestly suggest being careful doing cheap work to build a portfolio. You often end up with a bad example that takes ten times longer. In some cases, better to build a solid sample piece yourself to start. That way, you control the sample project.

I also find that credibility is a lot more about relationships than portfolios and specific work experience. Network and build trust - it's critical. All of my business is industry referral now, and no one asks for work samples or a resume. Even a secondhand connection can be huge for trust.

I'm certainly not claiming it's simple - it takes time and effort to build those relationships. I also don't claim I charged full rate on Day 1. This is an ongoing process, and we all have to work our way up. My goal is only to encourage people not to sell themselves short along the way. There were many times I could've passed on bad clients or pushed for more, and I didn't, and that ultimately hurt my business long-term and delayed my success.

One of my first big clients was a past relationship and a solid long-term contract. Ironically, as soon as I landed it, another prospect came along (from local networking), and the contract in hand gave me the confidence to price that second contract at a similar rate. Making that push got me from not paying the bills to being well ahead of my goal within the space of a month. It only took one solid client to make me start realizing my value, but I have to remind myself daily.

Establish 2-3 clients that you've created ongoing, verifiable "wins" for. Do the darn work for free, just get the "wins". You need something to leverage, so go create it. Document these and write about them on your blog; create case studies etc. Get testimonials from them. Hell, write the testimonials yourself and get them to approve them, just get the testimonials. Create a video explaining your "wins" using Jing (Jingproject.com) and explain it as if talking to a client...be relaxed and all orgainc like. :-) Link to these in all communications to prospects. Upload the videos to Youtube and get them to rank in Google for your name/company name etc.

2. Calculate your "reserve price".

This is the price you simply won't go any lower than on an hourly basis. It may be $75/hour or $25/hour based on where you live and what your monthly obligations are. Once you establish this bottom line pricing, mark it up by 20% and THAT becomes your rate. You KNOW you can outsource for at least 50% less than 25/hour so at least you're not losing money on smaller clients. Remember that self-employment taxes need to be considered, so maybe mark up your reserve price by 30-40%(?).

3. Lower your costs.

This takes time but as with any business, it's a must. YOU cannot scale. There is only one of you. YOU have to find others to do the heavy lifting. You need worker bees. Odesk, Freelance and others are your friend. Learn to use them well and you will free yourself up to sell more while managing your team from your smartphone (or your cabin in Aspen/Carribean beachfront cottage etc.). Hire a project manager to manage the other hired workers, then you have ONE point of contact and aren't managing a team. TIME will become your most precious commodity and outsourcing is the solution.

IF you execute these three things, you can't help but to make money as a consultant. (So says a consultant of 10 years with 2 kids, wife, vacations, and a team of 13 overseas worker + 2 project managers.)

Helpful Hint: Pitching VALUE - Premptively establish the VALUE of the entire keyword market you are working in. Then establish the value of the PORTION of said keyword market you're attempting to rank for for the client. This can easily and quickly be done using Google Adwords tool. (Be sure to read Rand's post on the inaccuracies inside GAdwords so as to avoid working with dirty data.) Now you have a dollar amount to use when you say to the cheap client "Look, Mr./Mrs. Client, we're playing in a $750,000/mo ad spend market (value of entire market). Do you have $750,000 to spend in order to stay at the top of the paid search results? Of course not. Now, the set of keywords that we're going after would only cost you a mere $12,500/mo. How does that sound? (GASP) Oh, still too much? So, based on an the following...

Simple Sell: "We now know what it would cost to pay to play, soooo our measly $2,500/mo isn't really relevant (they will smirk). We can safely estimate a 15% #1 ranking CTR over time. In agregate your keywords comprise a 37,200/mo search market. At 15% this will generate 5,500 additional targeted monthly visits, your existing conversion rate is 1.75% so an additional 96 customers per month, based on your margins = X in additional revenue (make sure this exceeds the $2500/mo spend :-). Mind you, when we reach our goal of #1 ranking for every keywword and you stop paying us, the rest is gravy since most, if not all of your organic rankings will stay #1. We'll show you how to support them when we're gone. They're like gifts that keep on giving! (but you did pay for them:-)"

Advanced sell for high level C-types, CFO's etc. (You'll need the following data points from them)

1. Average customer value, converstion to leads ratio from searches, conversion to sales from leads, average customer sale, average customer net value (lifetime), average sales per customer.

2. SHOW them how it will make them money.

They don't care how you do it and aren't necessarily impressed that you can do it. These conversations should focus on HOW MUCH ROI your SEO work is going generate over time. SHOW them charts and graphs (that's the language they speak) and be brutally honest and transparent about yourself and your team. CEO's and CFO's are people with kids, famlies, busy lives and most are down to earth guys and gals.

If you can do this, then you can easily sell a $7,500 - $20,000/mo. contract to a REAL business and stop dinking around with nickel and dime clients who don't truly understand the value of SEO.

Fantastic post Dr. Pete! Each point you made I was agreeing with as I read it - thinking to myself "when I comment I'll tell him I especially agreed with #X point". The problem is I can soooo relate to each one.

So after re-reading the post again, I think #3 and #6 are the ones I see most notably every day. I've been running an SEO agency for going on 9 years now. I can tell you that raising prices (each time we've done it) has been about the best thing we ever did. But it's not all just raising your rates. There is also something to be said for raising your scope levels.

Generally speaking, it's more efficient to have 5 clients each paying $2,000 than to have 10 clients each paying $1,000. With each client there is a minimum level of administrative involvement - invoicing, reporting, meetings, etc. and generally those do not increase proportionately to the involvement. In order words, if it takes me 15 minutes a month to write up and send out the invoice for a $1,000 client, it does not take me 30 minutes to do that with the $2,000 client. It's still 15 minutes. So as you increase scope levels you can find some efficiencies in overhead and administrative costs. I've found that when we bill client A for 4X the number of hours as client B, we may have more email communications with them but its not 4 times that. It's 1.5 to 2X.

So again, as the "scope" increases the net effect is typically that less time is spent on administrative activities and auxiliary activities as compared to the time spent actually doing SEO or delivering your service.

As per #3 - the hidden costs of the "self employment tax", etc. This couldn't be more true. There was one year when I went from being an employee to self-employed and in being self-employed I made roughly the same income as I did the prior year as a W2 employee. My tax rate, however, was quite a bit higher given the second half of the employment tax. All of these deductions that people fantasize about are nice in theory but I have yet to see them in practice. For certain industries it might make sense... if you are a traveling salesman that drives all day you can effectively realize a very nice deduction by expensing your car or reimbursing yourself for miles. For most SEO's who likely do most of their work remotely and don't drive in the car all day the actual impact of this deduction is pretty minor compared to the employment tax, etc.

One reality people miss on the tax side is that you only get a deduction when you spent the money. So, yes, I can upgrade my computer and write it off for a 30% tax savings, but I have to pay for 100% of the computer. I didn't make money - it just cost me a little less. As a consultant, those kinds of expenses are also probably less than 2% of my revenue. You can only buy so much hardware.

as a freelance I did all the mistakes a freelance can do when it comes to pricing my services, so that I cannot but agree with what you write in this post.

If I may add a "business" suggestion, it should be this one:

try to write down an estimated price list for any kind of service you offer. I know, it sounds like when you go to your mechanic for repairing your car, but someone our job - metaphorically - is not that much different.

That way you can show clearly to the client what are the raw costs of the services you are providing and what is the cost of your handling those services (then, depending on your choices, you may define that second voice as it will be by objectives obtained, price per hour/work, a mix of the two...). IMHO, the most transparent you are with the client about the reason of your prices, the better.

Secondly, try to diversify your "products" in order to be able to satisfy the needs of the largest number of clients. For instance, when it comes to small businesses or individuals who ask for a quote, I know they cannot sustain the cost of my "all included" service, but that they may agree and find useful an audit with no hands on services, but yes with a supervision and - somehow - tutoring from my part. This can be interesting especially for those ones who have started since not a long time, when you still have not decided what is the real target you look for as your client base.

Finally, even though it can be painful, learn to say no asap to a client. Better to have less but reliable clients, than many and all driving you crazy.

I definitely try to get scope/price out right away, even if it's just a few bullet points, a projected cost, and a timeline. It saves so much grief on both sides. People are so afraid to be transparent about pricing, but it can really help your marketing - if people understand what you do and how you do it, you'll get better matches. If that means my competitors know my prices - fine. There's plenty of work to go around, and I'm not competing on price.

I'd only argue that you have to be careful to make sure "diversification" doesn't become "a la carte". We had that issue at my old job - we'd break out prices so much that clients would pick and choose to a point that: (1) we had to do the hardest stuff for the least money, and (2) the end result just made no sense.

Here's an SEO example - I'm doing a chunk of Panda audits lately. I break out the steps, but one step I won't skip is verifying that the problem is actually Panda (even if the client is "100%" sure). The worst thing I can do is waste their time and money fixing what's not broken. If I broke out the "Verify Panda diagnosis" as a $500 line item, a lot of people would probably ask me to skip it, and that would be bad for both of us.

Pete, do you find that by breaking down your pricing and providing the customer with such a degree of transparency that they are surprised at how much there is to do?

I'm sure it must help increase the client's belief they're gatting value for money when you break down the "fuzzy magic" that SEO can be perceved as, down into a process with activities they can understand.

I think you have to be careful treading the line between transparency and that "a la carte" mindset, but yes, I think it does help people understand the scope of a project. It also just helps set expectations. When you have one bullet list in your head and they have another one, and neither of you actually says it out loud before the contract is signed, that has a way of ending badly.

I've had a smilar experience once where keyword research & competitor analysis was asked to be removed to lower costs and just keep in link building based on a supplied list of head KWs :( Luckily, I said no

Aside from that I think transparency is great - clients love seeing what they are paying for (especially if they are in the slightest way tech savvy)

If anyone has read SEO Secrets by Danny Dover he has an excellent pricing guide that lays out baseline pricing broken up by project and a guide for multiplying or dividing these base prices depending on your skill level. Highly recommended as a guide!

I aspire to work the 40 hour work week, but I’m not even sure that exists. To me I think of a 40 hour work week like Leprechauns, Unicorns and winning the Lottery, it all sounds nice and I enjoy day dreaming about it, but it doesn’t really exist or most likely won’t happen :-)

No entrepreneur I know or have ever known works a 40 hour work week. You just can’t or don’t. It is like you say Doc, you have at least 20 or so hours of work each week that doesn’t pay, so I still need to do 40 more.

Tax breaks for self employed, I agree LOL what a joke.

In fact, allow me to elaborate on that a bit more.

Let’s focus on that word tax. Oh what a wonderful word. Here is a brief outline of how awesome that word tax is and taxes you can expect to pay.

Self Employment Tax

Payroll Tax

Property Tax

School Tax

Federal Tax

State Tax

And my favorite of all….

Sales Tax! Both Selling and Buying. That’s right, if I buy a new car I pay sales tax, if I sell the car the new buyer has to pay sales tax on it again, Really???? Isn’t that double taxation???

Now these are just the biggies, I’m not even talking about all the little Energy Taxes, Phone Taxes, County Taxes, Business Taxes, Corporate Taxes, and the 1,000 others.

Though Health Insurance isn’t a tax, it certainly feels like one. It is a car payment or even in some cases a house payment. Ouch!!!!

Also you have to raise prices because of gas prices and health insurance prices. Remember, you pay these. Don’t forget the cost of living goes up every day as we watch the price at the pump grow and every year when the health insurance premiums increase exponentially.

I caught myself in this trap. I hadn’t raised prices for 7 years. One day I said to my wife, “what the hell is going on here????” How come we don’t have as much money as we used to? I am getting more work and making more money, however I have less money? Then I realized when you work a job, you get raises and cost of living raises not to mention paid vacation time. When you work for yourself there is only one way to get a raise, charge more. Raise your prices.

And be careful about tax right-offs. They can trick you too. Many people (I fell into this trap) think I want to pay as little tax as possible so I will buy as much and all the tax deductable items I want. The more and better stuff I buy, the less tax I will have to pay. Well this is true to an extent, however look at my math below, it will soon become clear how well that theory works out.

Let’s say I make $1,000I am taxed at 40% on that $1,000 But I buy a printer that cost $1,000 for my business I will be taxed $0, but I will also have $0.

Now, let’s say I make $1,000 I am taxed at 40% on that $1,000 I will pay $400 in taxes But, I will have $600

Thus, if I make $1,000 And I am taxed at 40% on that $1,000 But I buy a printer for $30 I will be taxed $388 And I will still have $582 and a printer.

So watch you overall spending if you want any money left over.

And when all else fails, simply send the left over bills that you can’t pay to: 1600 Pennsylvania Ave. Washington DC, and say thanks, good work guys :-)

Great point on the write-offs (I was saying that in a reply above) - getting a tax break on spent money means I spent the money and don't have it anymore. I could write off all my income, theoretically, and I'd have a house full of crap that I wouldn't be able to use because the electric company shut off my power.

I will say, though, that you can control your hours, if you fight hard enough. When my daughter was born, I decided to shoot for a roughly 35-hour week, and I've managed to do that. It means major changes, and it means breaking out blocks of total focus (no email, no social media, etc.). In some days, I do in 3-4 hours what it used to take me 8 to do. Sometimes, we confuse more for better.

Yeah, I know exaclty what you are saying and I suppose if I really tried, I could pull it off :-) The funny thing I find is working 60+ per week isn't becaus of the money, it is more because of the fact that I enjoy what I do. However, I do still find time to spend with my wife and son and I always take weekends and holidays off. I have found that if you only sleep 3 hours a night, you have plenty of time ;-) LMAO

I do think we can also get obsessed with the idea that everything is just about automation and working "smarter" but you never have to work hard. I really admire people who work smarter AND harder. I just found that many of the hours in my "work" day were wasted, and I could do more with less if I re-evaluated how I worked. Ironically, it's just freed me up to do more work of a different variety.

I find something like PPC is much more easily quantifiable than SEO in terms of what you are getting for your money, there's always so much you can do with an SEO campaign oftentimes you'll end up doing far many more hours than agreed anyway (I think my record equated to working for £2.50 an hour!).

I find companies prefer to pay a set amount as supposed to an hourly - deciding how much to charge, and then having the guts to go out and charge it, is still a challenging part of consultancy.

Ah yep I had the same issue when I first got into this industry, it was a set amount of $$ per month but when I was tracking hours one month it worked out to be between $5-10/hour. The other fact that gets left out is that your hourly rate also has to include project expensese for software/staff/contractors and even tax which drops the amount even further down.

The guide of budget and hours usually makes it transperant enough but many times you can over-invest and sometimes as I've found in the past there is still not a satisfaction on how much effort you put in. But yes unless it's PPC you can typically get caught out.

I agree with all of your points Pete, had to learn them the hard way as well. One thing you didn't mention is probably the most important one: charging by the hour will never make you rich, even charging 500 or 1000$ an hour like SEOmoz did. You will sell fewer hours and only huge ugly clients will be able to pay them.

I've written a post once called "are you a worker or an entrepreneur?". The basic premise is that selling your time like a day laborer will never make you an entrepreneur. You will run against a wall. You need to become independent of selling your time which is finite.

In hindsight, I realized that it sounds like I'm advocating hourly rates. I actually bill on a project or retainer basis, although I keep an hourly rate in my head just to do the math.

I completely agree, though, that the challenge of being a consultant is that, no matter how you bill, you eventually run out of hours in the day. I'm fighting that battle myself right now. I like what I do and make good money doing it, but there's only so much day to go around. Evolving beyond that is something few people pull off.

I actually NEVER bill hours. I bill VALUE. If you can estimate what dollar value you can bring in with your services - be it SEO, PPC or whatever else you're doing - it's a lot easier to convince a company to pay you a lot more.

It's very difficult to sell rankings. Firstly, most of cheap companies do that, so automatically you compete with them. Secondly - each ranking can have a different value, but the amount of work required to get it can be completely different.

Analyze your client, focus on what you can do to make his business better online. If you can provide him with a strategy of business expansion on the internet, he'll pay you all the money in the world. And if he's a dumbass to bargain then dump him, because he will suck the life out of you.

Since all SEOs do on-page optimization why not go forward and help in increasing conversions? What company wouldn't pay you 10,000 USD if you brought them 100,000 in revenues?

To secure yourself just pick a satisfactory retainer rate - be it monthly or hourly - to set your minimum price for a project. Then add a premium for financial results and your price is ready :)

I should be clear that hourly was just a way of making the point. I generally bill by project or retainer, although I have an hourly rate to do the math and calculate the price.

Pay-for-performance is tough, though, and can go very wrong in SEO and even CRO. The problem is that you're ultimately at the mercy of your client's ability to implement, and that ability can vary wildly. The other, occasional, problem is that sometimes it's hard to measure your unique impact, and you can get into fights over what you did vs. what they did.

If you go that route, it's important to have a solid relationship (maybe an existing client) and really outline the structure, goals, and metrics in detail. It's easy to say "I just made you $100K - you should pay me $10K!" and call it a no-brainer, but you'll never collect that after the fact.

Well yeah, of course, a receptive and flexible client is needed, but that's your time at stake and you have to decide upfront what services you are going to offer.

Direct pay-per-performance should never be the case, it's too risky (been there, done that ;)). That's why I say - "no less than..." but... a premium for results. Then you're actually motivated to make things work for the company, rather than just bill another set of hours.

One mistake many entrepreneurs make is compete with price. I think we've been just all raised in this culture of endless promos. But the only companies which can compete like that are the biggest titans.

I like to think of myself as a good craftsman instead of a mass producer and that's how I sell my services. One client can earn me a living. Two or three can make a sweet premium. It's not very easy to find companies like that, but it's worth making the effort. And believe me, there are companies like that out there.

No argument there. I have 3 long-term clients that pay the vast majority of my bills and then take on projects on the side as I see fit. I have been looking at how to work performance into the mix, but it can be tricky. One way I do it, indirectly, is to bill based on scope of work (or value, as you said) and then try to find ways to automate and improve how I work. If I can do more with less, I make more. I try to balance that out - if I can really streamline my process, I also do more for the client and split the difference, so to speak.

Actually, the most important moment that determines if you're going to earn a lot or not is pitching. First, you can already see how the client behaves. Second, you can establish yourself as a true expert in his eyes by doing things nobody else has ever done to him. Prepare a business analysis, put some numbers together, show some metrics, analyze the competition etc. Give them a lot for free, they will commend you and it will be more difficult for them to say no.

It's interesting how many companies have bad experiences with SEOs. But that also creates space for better performers. If you differentiate yourself in the beginning then you're a winner.

I do prefer, however, working with high management or business owners (regardless of the size of the company). These are the only two groups that are receptive and will actually speak with you, listen and take action (or allow you to).

Hourly: neither the client nor you knows how an hour of your time will improve the client's business. You lose sight of what's important. You automate to try and get more "stuff" done for the client in an hour, to justify a high hourly rate.

Project-based: from my experience, this usually means the same as an hourly rate, but with your taking all the risk. If the client is not satisfied with the result, he will bleed you to death. Because you estimated the number of hours to calculate the price, once you reach these hours you will not be motivated to provide further service.

Value-based: hours don't matter anymore. You do whatever is necessary to get your customer from point A to point B (such as increase sales by 15%). If you only need to pick the low-hanging fruits for that, good for you. If you automate to save time, good for you. The client doesn't have to breathe down your neck to see if the button is the right hue of pink. As long as you reach the objectives, everyone is happy and you got yourself all the money you deserve, while the customer got 10 times as much.

My point is this, sometimes it is much easier said than done. I've been freelancing for just coming up to two years now and honestly it's been quite a tough ride.

When I started out I intially set my hourly rate at the higher end of the scale having asked around what others charge, that meant I missed out on a lot of earlier opportunites as my pricing was likely too high.

I believe in placing a value on the work you do, but you've got to be sensible and look around at the competition. In our industry competition is rife, so you cannot price yourself out of the market.

Also, in the early days, you are not really going to have the liberty of turning away clients left, right and centre, maybe you'll get lucky and already have some regularly steady clients early on which will allow you to raise your rates, but I just want people to understand you have to be realistic and base your decisions on your current peformance and position.

If you've got plently of work on, raise your rates. If you need to attract some new clients, price your rates sensible to attract / win new quotations & proposals then when you've got one or two new clients on aboard. Think about raising your rates again.

Definitely fair points. Obviously, I'm trying to push a specific point, but it is a lot harder when you're starting out, and it's a balancing act. Looking back, I am amazed how often I chased a $250 or $500 project, just to bring in a few bucks, only to spend hours on the sale and have it fall through. I can't help thinking - what if I had used that time to create content, market, or build something? Chasing that tiny paycheck often cost me more than it gained me.

That said, you have to pay the bills. It's easier said than done, but I think you chose a good word - "sensible". You can set a fair rate that will still attract clients without making you seem desperate. No one should work for the guy on Craig's List who wants them to "Build the next Facebook" for $150. Better to eat a few more Ramen noodles :)

Dr. Pete, you need to realize maybe that world is about values and not just about values of money.

I personally think that chasing $250 check gives you more value in long term.

I would consider it more like donation to the system and after the donation it will give you more back than you put in. Even doing free work for the right cause can market your personal values and will attract people with simillar ones and also later attract the happiness to your life with or without money reward.

Thats what I got from my 33 years of life experiences since I was born. I don't know your background but I would recommend to find out what your values are first and then work on your related goals.

And be carefull with Ramen noodles :-) or better say watch what you let in to your system :-)

I'd argue that this entirely about values, and not the money. Ironically, every time I've chased a $250-500 paycheck, it's been about money, and not what I valued. Going after larger, long-term projects has brought me more money AND better work, along with better relationships that provide more value to my clients.

I've played around with packaged, low-priced audits and reports, and the problem is that it becomes an assembly-line task. The client probably gets decent value, but too often they ignore the report, implement it badly (or not at all), and it becomes little more than a piece of paper that eventually winds up in the trash. Worse yet, because they paid so little, they often don't respect my expertise. Too often, that's human nature.

Chasing small projects also meant I spent too much time in the chase. More than half of my week was sales and administrative work (every $250 project has to have a contract, get invoiced, etc.), and I hate sales and adminsitrative work. What I value is spending my time actually helping clients, not pushing papers and making calls. Raising my prices allowed me to make that shift.

Again, I'm all for pro-bono work when that's a conscious choice and you value an organization. What I'm not for is people selling themselves short. When I see new consultants and freelancers chasing small projects, 98% of the time it's not because that's what they want to do. It's because they want to get paid. The dollar amount has nothing to do with the motivation. You can sell out for $25 or $250K.

That's not to say that there's no way to sell a product/service for $250, provide value, and enjoy what you do. In the product realm, there are thousands of examples. Speaking within the consulting niche, though, I don't think it's sustainable.

I should also add that I'm not saying you should never give before you take. I've provided hundreds of hours of free content and information to people to build up my credibility. I would rather write a blog post or an e-book for free than sell a project cheap, because it's my choice to give out that information. Giving away that work and showcasing my expertise is what's allowed me to succeed, and I still give away tons of information. That's mine to give, though. What I won't do is settle for less than I deserve.

Good news, I have never had a client ask me how much I charge per hour. I propose the tasks invovled on a monthly basis including the manual work involved. My proposals are created by analyzing how many hours i will need to spend or feel like i need to spend to make them competitive on the serps. Most recently I have tacked on an additional budget for content, links (human edited directories and etc...) conversion improvement and etc.... Some clients do not comprehend or want to spend the money so i move on.

After you please one client and they are happy to pay up, you should develop some confidence in your monthly costs.

With that said, not every business can afford X amount of dollars regardless of the amount of leads you bring them. Why? They themselves did not figure out how to price their products/services to be profitable.

I actually price per project myself - didn't mean to imply this was only about hourly rates (although I use an hourly rate in my head to do the math). Great point on that last part - sometimes, you have to realize that a prospect's business model makes no sense. It's hard to do good work for someone with a bad product/service.

I'm similar. I mostly work on a fixed price per month and I avoid talking about hours and explain to them what sort of things will get done.

That way I'm motivated to get things done quickly and to do things that get results. As long as my clients are happy with the amount that is achieved each month, all is good.

With hourly there is no instentive to speed up processes. It just means less pay!

I am currently spending time on optimising my processes, finding and building tools, subscribing to services, all so that I can improve what I do and do it faster. If I can provide a better service that takes me less time, then I can charge more for less time. 2x win.

Now I have a full client list it is great that I don't have to look for work. I rarely lose an exising client and have to turn away several queries each month. Hence my price goes up :-)

When doing project work I always bill the client 50% beforehand and don't start the work until the payment clears my bank. The other 50% is payable on completion. Every company I've worked for with has been happy with that.

When working with regular clients, some freelancers (myself included) find it difficult to raise their rates, as they should (eg annually). So when drawing up an initial agreement, you might want to stipulate that rates will be renegotiated every 12 months. Or set a fee that factors in a bit of inflation.

SHOW them why video marketing works to take up pixels on first page ranking videos.

SHOW them why social media sites need to be leveraged constantly...

SHOW them that there is no tactic that a fortune 100 can afford that you can't deliver when it comes to organic SEO tactics.

After showign them this, if they balk at anything less than $3,500/mo for 12 months, then you're talking to someone who is A. broke and B. not worth your time. Gently decline them as a client and ask for a referral. :-)

Realize this...GOOD SEO's hold the conch. Prospects are like sick patients that need our medicine but they mus tbe able to afford it. If they can't, see if their competitors can.

I credit this single decision - realizing our value and raising our prices accordingly - about 4 years ago as being the primary reason Virante is able to do what it can today. It allowed us to invest in new technology, new people, provide better services for each individual client, etc.

This is so true. I never work with cheap people. I don't even work with control freaks. I have noticed that cheap people don't even want to meet becasue they are too damn cheap to even give time. I like meeting my clients. I remember once a prospective client wanted me to do work at $250/wk. Uhhhh, you want me to build you a site, do Google Adwords, and SEO? You want me to get you the same results as the person who referred me? Maybe at $1,000/wk it can happen, but not $250.

Pass on cheap people. They are cheap for a reason, it's their way of life.

It has been my experience (in almost 15 years of web consulting) that finding the RIGHT client is key.
Yes, money and/or hourly wage can assist in this process and don't sell yourself short, but finding a client that meshes well with your firms process or culture changes the whole "work" experience.
And definitely hold out for the next client if a cheapo is prompting you to go low and you are worried about how to cover your monthly overhead. You will regret it in the end.
Price your services appropriately and stick to it. The keyword is appropriately. Get a reality check on what you are truly worth and don't expect to be getting $150/hr after watching a handful of webinars.
And don't expect any 40 hour work weeks when starting out. You can probably double that number and still keep the 20 hours billable, at least for a while.

Knowing where to pitch your pricing is just so damn difficult when you're starting out. You're unsure about the competitions pricing relative to the value you can deliver, you don't know what your lack of experience is going to mean when it comes to finding customers, and the price they'll pay for your services. Hell, even your customers don't know how much you should be paying!

On top of that, you don't have much experience on which to base your estimations regarding the time/effort required to deliver on your promises. As you say, you'll underestimate the time you have available and be overly optimistic over how quickly you can get things done.

All this uncertainty undermines any confidence you may have, which I'm sure comes across to the prospective customer and as a result you're worried that you'll price yourself out of the market. You also don't have the confidence to believe that if this prospect won't pay - the next one will...

And then you find that people accept your proposals without challenging your price, or say that they would have happily paid more... and that's when you start kicking yourself...

Sharing advice like this, and people sharing their experience in the comments is incredibly valuable, and reassuring.

It seems to me that competing on price is a game you can only end up losing. Competiing on *value* gives you the opportunity to differentiate yourself and really make a difference.

No doubt it's tough when you're getting started, and I don't want to minimize that. Confidence is a critical word - a lot of the ability to price higher is about finding your confidence and believing that you know what you're doing. I 100% believe that that's visible to prospects.

Estimating your time better and scoping out projects, though, only comes with experience or (very, very careful planning and research). Some things do require you to make a few mistakes. I don't think you can completely avoid that, but hopefully we can learn from each other's mistakes and make a few less of them.

Thanks for the great post Dr. Pete! I am in my first year as an agency owner as have definatly struggled with this in the past! I wish this post was out about 9 months ago! I learned the hard way for sure!

From view of an offshore staff, I think agencies who operate offshore do understand the correlation between price & quality. But problem is individual web owners who know the word "SEO" only but not educated about it at all. They do not understand value of the service & as a result they look around oDesk for $2/hr SEO who will rank them no 1 by article submission,spammy commenting & social bookmarking! & lose some bucks with a belief "SEO" is useless:D. ( Thats only reason,I prefer working with agencies because there is real learning opportunities,value, real experts need no explanation & time wasting with a deal)

I am saving this post and will send those clients who will ask for $2/hr SEO service in future(Cheap!!!) to educate them :p. Keep up good works.

Finding the right balance between value and price is definitifely a consistant challenge. You have to deal with regular customers who do get more attractive prices sometimes and you have to deal with a lot of competition.

But in the end - if you know your value and did build a reputation and a brand - you are able to relate to a pricing system which makes you and the customer happy.

Great points Dr. Pete. I really enjoy these posts on how to be effective in running an SEO business. I definitely agree that you establish your perceived value by your pricing. When consumers have a lack of signals to determine quality they often use price as a guidepost. For example if you were buying wine, you would likely assume that a $100 bottle is superior to a $20 bottle. Your perception that the more expensive bottle is better is so strong that you will experience a better taste and greater satisfaction even if the actual wine in the bottles were switched.

Here is a good article on this effect: http://www.wired.com/wiredscience/2011/04/should-we-buy-expensive-wine/

In the SEO market, where it is difficult for customers to determine quality, a higher price can send a powerful signal that you are a high quality provider and may even lead to increased satisfaction.

this is a great topic Dr. Pete. Increasing your prices is a great way to directly increase revenuse with no new clients and for many businesses, this is just what they need to succeed.

My word of causion is to spend a great deal of time planning out the price changes to find teh best possible prices and the best method to introduce them in order for them to be well receieved by clients. It would also be good to think up some objection overcomers to the responses some clients may have

I wish you would have posted this several years ago with my last business. I focused so much on building the business instead of growing the bottom line. We quickly became a powerhouse in the area, but couldn't support the growth.

Great post and very timely for me as I am in the process of re-evaluating my pricing. I was actaully recommend a book on the SEOmoz LinkedIn group called "How to sell at higher margins than your compeitors: Winning every sale at full price, rate or fee". Long title I know, but I am about 2/3's of the book and it has me completely rethinking not only my pricing, but how to interface with prospects and leads. In combination with this article, I feel I am going to be putting myself and my business in a much better position going forward. I think if you got value from this post, you should check that book out (I got it from the library but Amazon has it for $20). Thanks again Dr. Pete!

Dr Pete, thanks for sharing your advice on charging for SEO services. I sympathised with all your points.

I did SEO Consultancy for two years before going back to in-house, and one thing I learned is that it is not always a good idea to tell a client how much you charge per hour. The smaller the client the more you'll scare him if he feels is way too much. With medium to larger clients I found it easier to give out an hourly rate. That's how things work in the Corporate world in many ways after all.

I used to find it ideal to work out a monthly cost followed with a breakdown of services you plan to bring in. Much along the lines of what Gianluca highlights. With this monthly cost, you can then work out how much time you can realistically give to that client and of course depending on the sector, whether you are likely to reach results quickly. If you know your stuff and can go through the basis of the kicking off the project, chances are that you can most definitely bring some form of good results to the client after a set period. Depending how fast you execute you may find yourself completing the allocated monthly tasks for that client in less time than expected, which effectively increases what you earn on each hour for that specifc client. Of course, other times, things may not go according to plan, and you have to bite the bullet and throw in a few extra hours, but that's life. The smaller client wants to be reassured that the monthly costs for SEO will be set to a ceiling, I think.

The other question is the added expense: 'operational costs': cost of link building, graphic design enhancments, outsourced copywriting services, that all needs to be explained and charged separatley on top of your fees and explained to the client? I guess that can go under section 3. in your post: "You have new costs"

Awesome post! I totally agree. But I'd like to add something that might be a bit more contravercial. I think that it's important for your business to ditch hourly based pricing too.

I recently read a fantastic article called "Strategic Pricing," by Jason Blumer. If you're pricing by the hour you might want to challenge that pricing model. Project pricing isn't for everyone, but you owe it to your business to cosider strategic pricing options.

Totally agree with you Pete. I have been running my own venture for over a year and have dealt with many clients who fight over price like hell, and well as you rightly mentioned they never stop figthing :-) Your statement (point 6.), that 'cheap attracts cheap' is 100% true in my expereince. I have learnt to be more cautious and keep away from bargain hunter clients' as I like to call them.

And your point 2. about 'Delivery killing Sale' is right on the mark. Since you are a expereinced entrepreneur yourself, can you suggest some tips, about how to better manage this issue in a new venture?

My maxim for life is: buy cheap buy twice. You don't get quality at bargain prices.

Some clients want to eek every drop of blood out of you, the leeches of the world, wanting something for nothing and feel they have bleed you to death. My favourite pet hate are the ones who organise a meeting and proceed to try and get as much free information out of you as possible and don't take a contract.

People will only pay you what value you put on yourself so if you sell yourself cheap you will get cheap clients and (as above) they are always the worst kind to work with. Read Ogilvys book about running an agency, it is a great insight into a brilliant creative mind. He would only work with clients he wanted to work with and I think once you set your bar, industry responds to the level.

There is a brilliant analogy about a woman in a jewelry store had products that were't selling, so she doubled the price and they sold out. It's a classic rule of psychology: I highly recommend reading Cialdini Influence and Persuasion.

I was recently disappointed to see that a high-profile SEO firm in the UK has just offered a 'spin-off' site and product aimed at small businesses which outlines SEO packages of £250 - what can any decent company deliver for that price? and what message does that send out to small businesses who don't understand what we do?

jon@ephricon.com - point well made about scope. Having less clients paying more is the objective but we have to protect ourselves from what happens if you lose one of those high fee payers - it can send you under.

This is a fantastic post and a fantastic discussion. In my experience, it holds equally well for designers and programmers, as well. There is a certain amount I need to make my overhead, and a certain amount of "profit" I want to make over and above that. That gives me a rough hourly figure that I use to come up with a dollar total to present to a potential client. And you know what? It turns out I am worth every penny. When you underprice yourself, you are both dragging down the market and creating an expectation that your services are of little value, and you can be treated that way. Know what you're worth, and charge it.

It took us 2 years to break through into the top bracket of fees. The problem though is that you need good references to be able to charge more. If clients are willing to pay more then they want to see what work you've done. So although this post explains the theory behind why and how to charge more. It's not as easy as it seems. Time in the market and experience is the only way to increase your fees.

The industry name will be destroyed if inexperienced SEO'ers started charging top end fees. It's just not practical.........

great post Dr Pete. I am also on your site.If you are good man you have to charge according to the quality of the job what you are doing and have in mind how much money will make your client from your advices. Melike this I am operating. If more rich the client I charge more money.I think you shouldnt have a stable price...You must judge the customers and be fair for all so even the little one to can afford to buy one quality service.My humble opinion.

Good advice, and I agree that you should not sell your services too cheaply. The only thing I didn't see in the article was about whether you bill people (30 days net) or if you ask for money upfront. Probably a combination of the two would work - 50% upfront and 50% upon completion. If it's SEO on a monthly basis - then make sure you never let it go more than 60 days - othewise you risk of not getting paid. Thanks, Joel. http://j3webmarketing.com/search-engine-optimization/

One of the hardest things to ficure out when I first got in to tech work 20 years ago was 'when' to raise my rates. I finally came up with a system that worked for me. When I was consistently billing out 30 hours a week my rates went up 10%. the increase applied to new clients immediately and old clients got a 6 month grandfather.

I was amazed at how fast my rate went up and as cheap peope fell off the bottom higher priced people were just waiting to take their spot. And the best part of it all, people that pay more repsect your time more. And are far less needy that cheap clients that seem to think they own all your time because they paid you $100 once 2 years ago.

As someone who is just setting out on this, its great to hear everyones advice. I especially liked Steve Gerencser's comment "I was amazed at how fast my rate went up and as cheap peope fell off the bottom higher priced people were just waiting to take their spot. And the best part of it all, people that pay more repsect your time more. And are far less needy that cheap clients that seem to think they own all your time because they paid you $100 once 2 years ago."

I've run into that on more than one occassion, and have found that I've spent a lot of time running around for small tasks with low billable hours. I've also found that point #2 in the article is a fairly accurate description of my situation right now.

(1) "Bake in" sales into your day. It's tough, but you've got to carve out time for sales and marketing, even if that's the first thing you do and it's 30-60 minutes. Once you let it slip, it can slip for weeks. Set goals - it could be X calls, or writing X words of a piece of content, etc. No matter how much client work you have, do something every day towards sales and marketing.

(2) Eventually, you can migrate toward long-term projects with steady clients. These days, I don't spend much time selling, and I can devote much more of the week to billable hours. Certainly kinds of projects lend themselves more easily to ongoing work, and you have to struggle a bit to find the intersection between what you're good at and ongoing opportunities.

Great post Pete. So much of SEO consulting is not measurable or billable. Combine that with the fact that so many of our deliverables are difficult to guarantee, and it makes for an extremely messy invoicing structure. I recently started an SEO training company, and pricing has been very difficult. Some of my students are non-commercial bloggers and college kids, while others are running businesses where a single sale provides a $10,000+ margin. Every vertical seems to vary greatly.

This is a lession i also took a while to learn. If you work cheap, you tend to be rushing and cutting corners and your work ends up being of lesser value, charge well and do a good job. good customers dont want cheap, they want results every time without the worry or checking up on you.

I have to agree with you Alan. If you give low price to rich client they think that you are not good, thats why you are cheap.I am also working with some clients like that and I know from personal experience what you mean.I hope the rest also understand.

Some very good insight into being your own boss/running the whole show. I've been doing it for several years and I can say that the whole self-employment tax + income tax + finding money to put into a 401k + paying bills + attempting to get health insurance = not a whole lot of wiggy room for the "extras" in life.

I love nothing more than a short, sweet and to the point article. Very valid points here, I cannot tell you how many people I've worked with who don't calculate correctly and land up in horrible situatons when the end of the financial year comes.

Thanks for the great post mate, its really informative and I really think I should charge more. I really like #6- Cheap attracts cheap, makes alot of sense and explains alot of what I think of companies.

I really need to charge more. I'm also a new start-up and I've been offering big discounts to attract new customers and to get things going. I has been over a year now and I really need to start charging more. Everything you say makes perfect sense to me, in my last job everything was paid for by the employer, all I had to do was ask. It's not the case anymore.

Charging more can be risky somtimes because of competition and one thing is assure that the client will expect great results , he will compare different companies pricing and services so if he rate all equal in servicing than a client can be loose becuase of over pricing this is what i think

There's a balance, of course, and I'm certainly not suggesting that no price is too high. I think we worry too much about losing sales, though, honestly. Looking back, there are plenty of clients I had my doubts about and wish, in hindsight, I would've lost before those contracts even started. Ironically, I've also lost good clients because my price was too low, and they went with someone more in the middle (or even the highest-priced vendor because they thought price = quality).

Mostly, I want people to trust their instincts and believe in their own value.

Another great post by Dr. Pete! Too bad it does not reach the right people in the right time.

Unfortunatelly there are a lot of agencies which work on the idea of outsourcing for a small ammount of money to freelancers. And take some low qualified freelancers to work for $1-$2 / hour on link building, development. You can imagine, what kind of work to they do. I always imagine that these people are like drowning people in deep water, fighting to get some air.

Hopefully this article will reach their employers, and make some change in their conception.

Great article! Pricing is something I have definitely struggled with and am overcoming!PS - please tell your wife I can so relate to her Bed Bath & Beyond shopping. I carry a folder of BB&B coupons in my car so I'm always ready! lol

This is great stuff. I think SEO professionals should be paid/charge based on results, like a financial professional. The financial results from SEO and PPC can be quite large (and residual) and so the compensation should scale with that in my opinion.

That was great stuff and convered just about everything except one big omission - or two. Those omissions are first, market value and second, perceived market value. With regards to the former, there is a top price that the market will bear regardless of how much a person would like to charge. With respect to the latter some consultants have a higher market value than others and could charge more for their services - thus the disparity in the hourly fees.

Perfect post Pete. What do you suggest for people who have start up business and trying to build the portfolio and looking for clients? They are reay to work for clients with comparitively low charges. All they want is to build good portfolio.

This would totally depend on many factors. If you are way underpriced and need to get back to reality, you may just have to bite the bullet and risk losing the client (they probably were not really the right client in that case anyways).
For smaller increases (5%-10%), it is possible to sometimes leave old clients at an existing rate and just charge your new clients your new rates. Let your existing clients know you have raised your rates and that they are getting a discount.
If you have to raise, you have to raise. If you can wait until the end of the calendar year, many times that provides a better time frame and validation for an increase. A cost of living increase can be applied from one calendar year to the next and it is more understood by clients during this time of the year.

Very will Dr. and also the staff. I am very happy to be in here. I have a lot and more thing to know in terms of SEO. I am a newbe I am highly needing a full support with all the members in these forum. HOPING that somebody would be happy in sharing their great ideas... Thank a lot I am just welcoming my self HAHAHAH

Interesting post pete! I only like to work with the best people, whether its link builders, designers, programmers or whatever. The people who are the best don't need to work cheap. So I can see how pricing things too cheaply can ironically deter people!

Fabulous article and it applies to many kinds of service-based business. I just shared this article with my professional belly dance community. Undercutters are everywhere and you just have to keep confident that there are clients out there wanting better service and willing to pay for it.

So although you can charge more (which will lead to less clients) and the world economy is cutting back, I would instead recommend to lower the rates and use high quality SEO companies overseas who can do the job just as good. Now, there are lots of low quality SEO companies overseas that just do link spam. I am not taling about those guys but the real SEO companies with a solid track record. So even if you charge $25, you can take on more clients because of leverage. This is how you can grow your SEO company to a massive organization if you know what I mean. All industries are heading in this direction and if you dont think this way, your competition already has and they will win the bigger market and you will have to struggle unless you have big connections with big boys...

I disagree. Eventually, you become just a middle-man. It works now, but once you're clients figure it out, they'll just hire those overseas companies themselves. For now, it's unknown territory, and clients need go-betweens, but 5-10 years from now they won't. At that point, companies who only outsource will cease to exist, because they provide no unique value.

I'm not saying that there's no place for outsourcing, or that you can't use it to scale (that point is certainly fair), but you have to have a value above and beyond that. Otherwise, people are eventually just going to go to the source. People come to me for me and my expertise, not because I can get them the lowest rate possible.

Also, charging more hasn't led to less clients - just the opposite. I get more leads now than ever before, by a factor of 2-3.

I usually charge around $40 an hour, this kind of price makes it more realistic for smaller startups to give me longer term contracts, I would much rather work with one client for a year than four clients at three months each. Less downime means less stress.

I do think it's reasonable to trade long-term, reliable money for a lower hourly rate (whether or not you bill hourly). I do that with retainers. Knowing I've got 10 hours/week equivalent for a client for the next few months makes a huge difference to the bottom line and means that I can ease off on selling a bit. Long-term contracts account for about 30 hours of my week at this point.